The Washington Post (Link) - Peter Whoriskey and Kendra Marr (April 1, 2009)
The Obama administration will play a key role in reshaping General Motors' board of directors over the next six months, potentially giving it even greater control in the management of the storied American manufacturer.
The president's auto task force plans to consult with the company as it replaces a majority of its board, a White House official said. The board today largely consists of the current and former chiefs of major U.S. corporations such as Coca-Cola, Ernst & Young, Pfizer and Eastman Kodak. It is not known which of the 12 board members will leave.
The president said Monday that "the United States government has no interest in running GM." But in practice it is already exerting tremendous influence over it, a situation that has triggered fierce debate over how much power the government should wield over the companies that it aids.
Kent Kresa, 71, GM's new chairman, said yesterday that company officials will seek to replace a majority on the board by August, as the automaker moves to restructure operations.
"There will be continuing coordination as decisions about the leadership of the company are made," a White House official said yesterday. "Folks from the autos task force will be involved in those decisions."
Kresa, a former Northrop Grumman chief executive who has been a GM director since 2003, was selected to be chairman by the Obama administration after it ousted chairman and chief executive G. Richard Wagoner Jr. on Sunday. Fritz Henderson was named chief executive.
Some critics characterize the White House's removal of Wagoner as a move toward European socialism. In addition to forcing leadership changes at GM, President Obama on Monday said that Chrysler must strike a partnership with Italian automaker Fiat, and that GM must further cut its already shrunken workforce and product lines.
"They have opened Pandora's box -- the U.S. government has decided they know better than the private company," said Sen. Bob Corker (R-Tenn.) "There is no question that this country is moving down a very different and foreign path. We have crossed this threshold: We own this company and we are telling it what to do."
But defenders say the government must make changes at the ailing companies to safeguard the billions of dollars being invested by taxpayers. "There's a new CEO and new chairman of the board," said Rep. Sander M. Levin (D-Mich.). "The government will play an active role as with Fannie Mae, Freddie Mac and other institutions with a major investment from taxpayers."
Levin turned aside the possibility that the government will run the company. "It's clear they want this restructuring accelerated with the corporation taking a leading role," Levin said.
Even before Wagoner's ouster and the nomination of Kresa, the government has been taking steps, large and small, to shape the operation of General Motors.
The December loan agreement, under which the company received $13.4 billion in loans, required among other things that the company establish new limits on expense reporting, executive privileges and compensation.
But the coordination with the government affects what appear to be smaller matters as well. For example, yesterday GM announced a new "Total Confidence" program for consumers that offers a warranty, an OnStar traveler's assistance system and a promise to pick up as much as $500 a month of car payments for buyers who lose their jobs. "The government is aware of it, completely supports it," Mark LaNeve, head of GM's U.S. field marketing, said yesterday in announcing the program.
Meeting with reporters, GM's new chief executive Henderson said the company would work diligently over the next 60 days to win the concessions needed to return the company to viability. He said the restructuring plans must "go deep, go harder and go faster" in order to comply with the demands of the Obama administration.
The company is willing to use bankruptcy proceedings if necessary to shed its overwhelming debts, he said. He said the company and stakeholders prefer to stay out of court, which "does involve risk" and could hurt the company. But a team is working on that strategy in case it becomes necessary, he said. "I do think we are capable of doing it out of court," he said. But in court or out of court, "we're going to get the job done."
Currently, its massive debt is a key burden for General Motors. It owes the United Auto Workers health plan $20 billion and has another $27 billion in outstanding bonds.
Under the government's proposed reorganization for General Motors, the union health plan and the company's bondholders would give up much or most of those claims in exchange for an equity stake in the reformed GM.
Given the magnitude of the swap, many analysts think those two entities could wind up with a majority of company stock.
"The board has recognized for some time that the company's restructuring will likely cause a significant change in the stockholders of the company" chairman Kresa said in a statement. This would "create the need for new directors with additional skills and experience."
Another key stakeholder in the company, of course, would be the government, which has lent the company money but does not own any shares. And many analysts believe that whoever the shareholders may be, the government's interest will matter most.
"Obviously, the government has a voice as an investor," said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware. "But it's not like the government speaks as one voice among many. It becomes the overwhelming voice."
The government, bondholders and the union will all be competing for influence, said Ronald J. Gilson, a law professor at Stanford and Columbia, who is a corporate governance expert.
"It's going to be a very fractious place," Gilson said. "There will be large shareholders who have specific interests."
Board members currently come up for review every five years and generally are allowed to serve until age 72. The company's shareholders would likely have to approve any board nominees. GM is scheduled to hold a shareholder meeting in August.
Noting that he will report to the Treasury and to the company's board, Henderson said yesterday: "We have two boards of directors."